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2024 (2) TMI 1036 - AT - Income TaxDisallowance u/s. 14A r.w.r.8D - expenditure incurred in earning exempt income or not? - HELD THAT - We note that this issue was considered by this Tribunal in the case of Canara Bank 2021 (2) TMI 1366 - KARNATAKA HIGH COURT held from perusal of Section 14A of the Act, it is evident that for the purposes of computing the total income under this chapter, no deduction shall be allowed in respect of the expenditure incurred by the assessee in relation of the income which does not form part of his total income under the Act. The expenditure, the return of investment and cost of requisition are distinct concepts. Therefore the word 'incurred' in Section 14A of the Act have to be read in the context of the scheme of the Act and if so read, it is clear that it disallows certain expenditures incurred to earn exempt income from being deducted from other incomes which is includable in the total income for the purposes of chargeability to the tax It is equally well settled that expenditure is a pay out. In order to attract applicability of section 14A of the Act, there has to be a pay out and return of investment or a pay back is not such a debit item. See WALFORT SHARE AND STOCK BROKERS (P) LTD 2010 (7) TMI 15 - SUPREME COURT as well as MAXOPP INVESTMENTS LTD 2018 (3) TMI 805 - SUPREME COURT . In the instant case, the assessee has admittedly not incurred any expenditure. Decided in favour of assessee. Deduction u/s 36(1)(vii) - deduction claimed of bad debts of non-rural branches - claim denied as amount was not actually written off in the loan account of the debtors and entire write off (both rural and non rural debts) should be adjusted against the credit balance in the provision a/c u/s 36(1)(viia) and only the excess can be claimed. Since there is no excess amount, the write off is not allowable - HELD THAT - As decided in own case 2022 (1) TMI 583 - ITAT BANGALORE for AY 2014-15 in favour of the assessee after considering Explanation 2 inserted in section 36(1)(vii) by Finance Act, 2013 (after the decision of the Supreme Court in the case of Catholic Syrian Bank 2012 (2) TMI 262 - SUPREME COURT wherein set aside the order passed by Ld CIT(A) on this issue and direct the AO to allow the bad debts relating to nonrural branches u/s 36(1)(vii) of the Act without adjusting the same against the PBDD a/c, since the said PBDD a/c relates to rural advances only. MAT computation u/s 115JB - CIT(A) upheld the addition for provision for HD commission, provision for ex gratia and bonus, provision for gratuity to HD canvassers and provision for gratuity - HELD THAT - We note that in respect of provision for HD commission there is provision of Rs. 1,75,00,000 and in the current year, the assessee paid Rs. 1,02,78,643 which relates to previous assessment year. We remit this issue to the AO for verification and if the provision is allowed in the previous assessment year, then principle of consistency should be followed. However, if the AO finds that this is the first year for the provision of HD commission, then the actual payment made by the assessee should be allowed. In respect of provision for ex gratia and bonus, gratuity to HD canvassers and provision for gratuity, the assessee has made provision on the basis of actuarial valuation. However both the authorities below have disallowed by holding that it is a contingent liability which is not correct. Since the assessee has made provision on the basis of certificate from the actuarial valuer therefore the provisions made are to be treated as ascertained liability. This view is fortified by the decision of the coordinate Bench of the Tribunal in the case of Jeans Knit (P) Ltd. 2022 (3) TMI 244 - ITAT BANGALORE wherein held AO is not right in adding back the provisions made by the assessee towards gratuity, leave encashment and bonus for computation of book profits u/s. 115JB on the ground that they are unascertained liability. Hence, we allow the appeal in favour of the assessee and direct the AO to give effect to the same in the computation of book profits u/s 115JB. Non consideration of revised Book Profit u/s 115JB - CIT(A) held that the appellant failed to furnish the copy of the revised Audit Report in form 29B and hence the revised computation of Book Profit could not be accepted - HELD THAT - We noted that during the course of assessment proceeding vide assessee s letter dated 5.11.2018 the assessee submitted revised calculation of book profit. In the said calculation the appellant bank had not added the provision for NPA of Rs. 267,17,51,684 and provision for investment depreciation of Rs. 13,16,10,956. The AO did not accept the same. The CIT(A) observed that the appellant failed to furnish any copy of audit report in Form 29B to comply the provision of section 115JB(4) of the Act. Considering the argument of the ld. AR of the assessee, we remit this issue to the AO fresh consideration. Deduction claimed u/s. 36(1)(viia) - assessee has computed deduction u/s 36(1)(viia) being a scheduled bank to the extent of 7.5% of the total income and 10% of the AAA of rural branches - AO noted that the assessee has claimed excessive deduction on two counts, firstly the assessee has not updated its information about categorization of rural branches which has either converted to semi urban branches or where the population has exceeded 10,000 and secondly the assessee has claimed 10% of the entire advances of rural branches including the opening balances - HELD THAT - As relying on Canara Bank 2023 (1) TMI 291 - KARNATAKA HIGH COURT while calculating AAA of rural branches under section 36(1)(viia), not only fresh advances made during year, but also amount of advance outstanding are to be considered. Accordingly, the ground taken by the revenue on this issue is dismissed. Computation of deduction u/s. 36(1)(viia) in respect of classification of rural branches - HELD THAT - This issue has been decided in the case of State Bank of Mysore v. ACIT 2015 (1) TMI 1328 - KARNATAKA HIGH COURT to hold that for claiming deduction u/s. 36(1)(viia) in respect of rural branches, the latest/provisional census available should be considered. Accordingly this issue is remitted back to the AO. The assessee is directed to provide the latest/provisional census which was available for the respective assessment year. This ground is allowed for statistical purposes.
Issues Involved:
1. Disallowance under Section 14A. 2. Deduction under Section 36(1)(vii) for non-rural debts. 3. Additions to book profits under Section 115JB. 4. Deduction under Section 36(1)(viia) for rural branches. Summary: Issue 1: Disallowance under Section 14A The assessee bank earned tax-free income and had a significant investment portfolio. The AO was dissatisfied with the disallowance made by the assessee and invoked Rule 8D to make disallowances. The CIT(A) deleted the disallowance made under Rule 8D(2)(ii) but upheld disallowances under Rule 8D(2)(i) and (iii) to the extent of exempt income. The Tribunal, following the Supreme Court decision in South Indian Bank Ltd. and other relevant cases, deleted the disallowance sustained by the CIT(A) for both AY 2016-17 and 2017-18. Issue 2: Deduction under Section 36(1)(vii) for Non-Rural Debts The assessee claimed deductions for non-rural debts written off. The AO disallowed the deductions on the grounds that the amounts were not actually written off in the loan accounts and that the entire write-off should be adjusted against the credit balance in the provision account under Section 36(1)(viia). The CIT(A) upheld the AO's decision. The Tribunal, following the assessee's own case and the Supreme Court decision in Catholic Syrian Bank Ltd., allowed the deductions claimed by the assessee for both AY 2016-17 and 2017-18. Issue 3: Additions to Book Profits under Section 115JB The AO made additions to book profits for various provisions, which the CIT(A) partly upheld. The Tribunal remitted the issue of provision for HD commission to the AO for verification and allowed the provisions for ex gratia, bonus, and gratuity as ascertained liabilities based on actuarial valuation. The Tribunal followed the decision in Jeans Knit (P) Ltd. and directed the AO to reconsider the revised book profit calculation submitted by the assessee. Issue 4: Deduction under Section 36(1)(viia) for Rural Branches The AO restricted the deduction claimed under Section 36(1)(viia) by reclassifying certain branches and considering only incremental advances. The CIT(A), following the jurisdictional High Court decision in Canara Bank, allowed the deduction claimed by the assessee and remitted the issue of rural branch classification to the AO based on RBI guidelines. The Tribunal upheld the CIT(A)'s decision, following the Karnataka High Court's ruling that both fresh advances and outstanding amounts should be considered for calculating Aggregate Average Advances (AAA). The Tribunal also remitted the issue of considering the latest/provisional census for rural branch classification back to the AO. Conclusion: The appeals of the assessee were partly allowed for statistical purposes, and the appeals of the revenue were partly allowed for statistical purposes.
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